unit 1 2 3

1) An incentive
A) could be either a reward or a penalty.
B) is the opposite of a trade -off.
C) could be a reward but could not be a penalty.
D) could be a penalty but could not be a reward.

2) The most fundamental economic problem is
A) health.
B) security.
C) scarcity.
D) the fact the United States buys more goods from foreigners than we sell to foreigners.

3) Economics is best defined as the study of how people, businesses, governments, and societies
A) attain wealth. B) choose abundance over scarcity.
C) use their infinite resources. D) make choices to cope with scarcity.

4) Economists point out that scarcity confronts
A) neither the poor nor the rich. B) the rich but not the poor.
C) the poor but not the rich. D) both the poor and the rich.

5) Scarcity requires that people must
A) make choices. B) cooperate. C) trade. D) compete.

6) As an economic concept, scarcity applies to
A) neither time nor money. B) time but not money.
C) both money and time. D) money but not time.

7) Economics is the study of
A) the distribution of surplus goods to those in need.
B) ways to reduce wants to eliminate the problem of scarcity.
C) affluence in a morally bankrupt world.
D) the choices we make because of scarcity.

8) Which of the following is a macroeconomic topic?
A) Why plumbers earn more than janitors.
B) The reasons for the rise in average prices.
C) The reasons for a rise in the price of orange juice.
D) Whether the army should buy more tanks or more rockets.

9) Which of the following is a microeconomic topic?
A) The reasons for a decline in average prices.
B) The effect of the government budget deficit on inflation.
C) The reasons why total employment decreases.
D) The reasons why Kathy buys less orange juice.

10) Studying the determination of prices in individual markets is primarily a concern of
A) positive economics. B) microeconomics.
C) negative economics. D) macroeconomics.

11) In broad terms the difference between microeconomics and macroeconomics is that
A) microeconomics studies decisions of individual people and firms and macroeconomics
studies the entire national economy.
B) microeconomics studies the effects of government taxes on the national unemployment
rate.
C) they use different sets of tools and ideas.
D) macroeconomics studies the effects of government regulation and taxes on the price of
individual goods and services whereas microeconomics does not.

12) Which of the following is a macroeconomic issue?
A) The hiring decisions that a business makes.
B) The effect an increase in the tax on cigarettes has on cigarette sales.
C) The effect on the inflation rate of an increase in the quantity of money.
D) The purchasing decisions that an individual consumer makes.

13) The question "Should movies or compact discs be produced?" is an example of the
A) "how" question.

B) "what" question.
C) "where" question.

D) "for whom" question.

14) When firms in an economy start producing more computers and fewer televisions, they are
answering the ________ question.
A) "what"

B) "why"

C) "for whom"

D) "when"

15) Macroeconomics is the branch of economics that studies
A) the way individual markets work.

B) important, as opposed to trivial, issues.
C) the economy as a whole.

D) prices of individual goods.

16) Which of the following is NOT a factor of production?
A) The management skill of a small business owner.
B) The wages paid to workers.
C) The water used to cool a nuclear power plant.
D) The effort of farmers raising cattle.

17) To answer the "for whom" question, we study
A) business cycles.

B) technological change.
C) the global economy.

D) income differences.

18) Overtime worked by a retail clerk is considered ________ and earns ________.
A) entrepreneurship; profit

B) labour; wages
C) human capital; interest

D) labour; profit

19) When a university decides to add to the library instead of adding to classrooms, it faces the
A) "what" trade -off.

B) "how" trade -off.
C) "for whom" trade -off.

D) macroeconomic question.

20) The loss of the highest-valued alternative defines the concept of
A) scarcity.

B) marginal benefit.
C) entrepreneurship.

D) opportunity cost.

21) The opportunity cost of something you decide to get is
A) the highest-valued alternative you give up to get it.
B) all the possible alternatives that you give up to get it.
C) the lowest-valued alternative you give up to get it.
D) the amount of money you pay to get it.

22) When an action is chosen, the highest-valued alternative NOT chosen is called the
A) explicit cost.

B) accounting cost.
C) opportunity cost.

D) implicit cost.

23) A positive statement is
A) valid only in the context of a model with simple assumptions.
B) about what ought to be.
C) the result of a model's normative assumptions.
D) about what is.

24) Which of the following is an example of a positive statement?
A) Every American should have equal access to health care.
B) We should cut back on our use of carbon-based fuels such as coal and oil.
C) Increasing the minimum wage results in more unemployment.
D) The Bank of England ought to cut the interest rate.

25) Which of the following are true regarding "positive" statements?
I. They describe what "ought to be."
II. They describe what is believed about how the world appears.
III. They can be tested as to their truthfulness.
A) II and III.

B) I, II and III.

C) I and II.

D) I and III.

26) Which of the following is a positive statement?
A) State lotteries are good methods to use for raising revenues.
B) Increased prison sentences are the best way to reduce the crime rate.
C) Inflation is a more serious problem than is deflation.
D) An increase in gas prices leads people to carpool more.

27) The statement "Managers with a college education earn £18 an hour while ski instructors who
did not complete college earn £10" is
A) a positive statement.

B) an ethical statement.
C) a normative statement.

D) a political statement.

28) Which of the following is a macroeconomic issue?
A) The cause of a decline in the price of peanut butter.
B) What determines the amount a firm will produce.
C) How a rise in the price of sugar affects the market for sodas.
D) How government budget deficits affect interest rates.

29) Statements about what ought to be are called
A) normative statements.

B) positive statements.
C) implications.

D) assumptions.

30) When Susan makes the statement, "The government should spend less money to take care of
parks," she is
A) making a normative statement.

B) facing the standard of living trade -off.
C) testing an economic model.

D) making a positive statement.

31) The statement "An increase in the price of gasoline will lead to a decrease in the amount
purchased" is
A) a positive statement.

B) a scientific statement.
C) a political statement.

D) a normative statement.

32) Which of the following is an example of a normative statement?
A) Household consumption is the largest component of spending.
B) The business sector is the primary source of jobs.
C) Households should save more.
D) Government spending rose in the 1990s.

33) You decide to take a vacation and the trip costs you £2,000. While you are on vacation, you do
not report to work where you could have earned £750. The opportunity cost of the vacation is
A) £1,250.

B) £2,000.

C) £750.

D) £2,750.

34) The production possibilities frontier shifts as
A) the money supply grows or shrinks.

B) tastes and preferences change.
C) technology changes.

D) the unemployment rate changes.

35) Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2
units of X or 4 units of Y in an hour. The opportunity cost of producing a unit of X is
A) 1 hour for Agnes and 2 hours for Brenda.
B) 1 unit of Y for Agnes and 1/2 unit of Y for Brenda.
C) 1 unit of Y for Agnes and 2 units of Y for Brenda.
D) 1 hour for Agnes and 1/2 hour for Brenda.

36) The production possibilities frontier illustrates
A) the combination of goods and services that can be produced efficiently.
B) all possible production of capital goods.
C) all goods that can be produced by an economy.
D) all goods and services that are desired but cannot be produced due to scarce resources.

37) Jane produces only corn and cloth. Taking account of her preferences for corn and cloth
A) makes her production possibilities frontier steeper.
B) makes her production possibilities frontier straighter.
C) does not affect her production possibilities frontier.
D) makes her production possibilities frontier flatter.

38) Ted can study for his economics exam or go to a concert. He decides to study for his economics
exam instead of going to the concert. The concert he will miss is Ted's ________ of studying for
the exam.
A) explicit cost

B) discretionary cost
C) opportunity cost

D) implicit cost

39) The opportunity cost of economic growth is
A) future consumption that a nation gives up to consume more today.
B) future consumption that a nation gets if it gives up some present consumption.
C) present consumption that a nation gives up to accumulate capital.
D) investment that a nation gives up to increase its economic growth.

10) Marginal cost curves generally slope
A) upward because of increasing opportunity cost.
B) downward because of increasing opportunity cost.
C) upward because of decreasing opportunity cost.
D) downward because of decreasing opportunity cost.

17) Capital accumulation
A) makes the production possibilities frontier steeper.
B) shifts the production possibilities frontier inward.
C) shifts the production possibilities frontier outward.
D) has no impact on the production possibilities frontier.

18) Some time ago the government of China required many highly skilled technicians and scientists
to engage in unskilled agricultural labour in order to develop "proper social attitudes." This
policy probably caused China to produce
A) at an inappropriate point along its production possibilities frontier.
B) inside its production possibilities frontier with respect to food, but outside with respect to
high-technology goods.
C) inside its production possibilities frontier.
D) outside its production possibilities frontier with respect to food, but inside with respect to
high-technology goods.

19) A situation in which some resources are NOT fully utilized is represented in a production
possibilities frontier diagram by
A) the midpoint of the production possibilities frontier.
B) a point inside the production possibilities frontier.
C) any point on either the horizontal or the vertical axis.
D) a point outside the production possibilities frontier.

20)The fact that individual productive resources are NOT equally useful in all activities
A) implies that a production possibilities frontier will be bowed outward.
B) follows from the law of demand.
C) implies that gain from specialization and trade is unlikely.
D) implies a linear production possibilities frontier.

A point inside a production possibilities frontier
A) is more efficient than a point on the production possibilities frontier.
B) reflects the fact that more technology needs to be developed to fully employ all resources.
C) implies that too much labour and not enough capital is being used.
D) could indicate that resources are misallocated.

The production possibilities frontier is
A) upward sloping and reflects unlimited choices.
B) downward sloping and reflects trade-offs in choices.
C) upward sloping and reflects trade-offs in choices.
D) downward sloping and reflects unlimited choices.

1) A relative price is
A) the difference between one price and another.
B) the ratio of one price to another.
C) the slope of the supply curve.
D) the slope of the demand curve.

2) If the price of a hot dog is 2 and the price of a hamburger is 4,
A) the relative price of a hamburger is 1/2 of a hot dog.
B) the relative price of a hot dog is 1/2 of a hamburger.
C) the money price of a hot dog is 2 hamburgers.
D) the money price of a hamburger is 2 hot dogs.

3) The opportunity cost of a hot dog in terms of hamburgers is the
A) ratio of the price of a hot dog to the price of a hamburger.
B) ratio of the slope of the demand curve for hot dogs to the slope of the demand curve for
hamburgers.
C) ratio of the slope of the supply curve for hot dogs to the slope of the supply curve for
hamburgers.
D) price of a hot dog minus the price of a hamburger.

4) When we say demand increases, we mean that there is a
A) movement to the right along a demand curve.
B) rightward shift of the demand curve.
C) movement to the left along a demand curve.
D) leftward shift of the demand curve.

5) People buy more of good 1 when the price of good 2 rises. These goods are
A) substitutes.

B) inferior goods.
C) complements.

D) normal goods.

6) By definition, an inferior good is a
A) want that is not expressed by demand.
B) good for which demand decreases when its price rises.
C) normal substitute good.
D) good for which demand decreases when income increases.

7) Because of increasing marginal cost, most supply curves
A) are horizontal.

B) are vertical.
C) have a positive slope.

D) have a negative slope.

8) A supply curve differs from a supply schedule because a supply curve
A) is a graph and the supply schedule is a table.
B) represents one firm, whereas the supply schedule represents all firms in the market.
C) holds the number of suppliers constant, whereas the supply schedule allows the number
to vary.
D) holds costs of factors of production constant, whereas the supply schedule allows them to
vary.

9) If there exists a shortage in the market for snowmobiles, then the price of a snowmobile will
A) rise.

B) neither rise nor fall.
C) at first fall then rise.

D) fall.

10) In a supply and demand figure, the equilibrium price and quantity are found at the
A) vertical intercept of the supply curve.
B) horizontal intercept of the supply and the demand curves.
C) horizontal intercept of the demand curve.
D) point where quantity supplied equals quantity demanded.

11) If the quantity supplied exceeds the quantity demanded, then there is a
A) surplus and the price is above the equilibrium price.
B) shortage and the price is below the equilibrium price.
C) surplus and the price is below the equilibrium price.
D) shortage and the price is above the equilibrium price.

12) If the price is above the equilibrium price, then there is a
A) surplus, and market forces will operate to raise the price.
B) shortage, and market forces will operate to lower the price.
C) shortage, and market forces will operate to raise the price.
D) surplus, and market forces will operate to lower the price.

13) The price of a good will fall if
A) the current price is less than the equilibrium price.
B) there is a surplus at the current price.
C) the quantity demanded exceeds the quantity supplied.
D) the price of a complement falls.

14) When the quantity demanded equals quantity supplied,
A) there is a surplus.
B) there is a shortage.
C) the government must be intervening in the market.
D) None of the above.

15) A price below the equilibrium price results in
A) a further price fall.

B) a shortage.
C) a surplus.

D) excess supply.

Which of the following decreases the supply of popcorn?
A) A technological development in the production of popcorn.
B) A decrease in the number of popcorn suppliers.
C) A decrease in the price of popcorn.
D) An increase in the price of popcorn.

Which of the following does NOT shift the supply curve?
A) A decrease in the wages of labour used in production of the good.
B) A fall in the price of a substitute in production.
C) A technological advance.
D) An increase in the price of the good.

27) Over the past decade technological improvements that have lowered the cost of producing an
automobile have increased
A) neither the supply nor the demand for automobiles.
B) the supply but not the demand for automobiles.
C) the demand but not the supply of automobiles.
D) both the supply and the demand for automobiles.

28) It is expected that the price of a bushel of wheat will increase in one month. This belief will
result in
A) a decrease in future supply of wheat.
B) an increase in current supply of wheat.
C) a decrease in current supply of wheat.
D) no change in current or future supply of wheat.

29) Blank tapes and prerecorded tapes are substitutes in production. An increase in the price of a
blank tape will lead to
A) a decrease in the quantity supplied of prerecorded tapes but not in the supply of
prerecorded tapes.
B) an increase in the quantity supplied of prerecorded tapes but not in the supply of
prerecorded tapes.
C) a decrease in the supply of prerecorded tapes.
D) an increase in the supply of prerecorded tapes.